Weekend Reading for Financial Planners (Nov 26-27)

Executive Summary

Enjoy the current installment of "weekend reading for financial planners" – highlights this week include two recent pieces about the FPA (one positive and one negative), some articles about how behavioral finance is starting to change how we look at various financial and economics problems, a few technical articles on health care and non-spouse beneficiaries of inherited IRAs, and another great piece from John Hussman about the current economic environment. We also look at two pieces highlighting new ways to look at the value and power of blogging and starting a Twitter account. Enjoy the reading!

Weekend reading for November 26th/27th:

Branham, Named FPA President-Elect, Sees Members Charting New Direction – This article from AdvisorOne discusses the recent election of financial planner Michael Branham as the FPA National organization’s President-Elect for 2012 (which means he will be President in 2013). The article highlights some of FPA’s initiatives likely underway during Branham’s leadership term, including an organizational review of FPA’s internal structure, fiduciary and regulatory advocacy efforts, and issues around bringing the next generation of financial planners into the organization. Notably, Branham is a former president of the NexGen community and one of the youngest ever to take the Board president position for FPA. In addition, the FPA board also selected three new board members: Marty Durbin, Pamela Sandy, and Richard Stumpf.

The FPA’s Dilemma – On the other hand, this article by industry commentator Bob Veres from this month’s Financial Planning magazine highlights some criticism of the FPA. Veres suggests that FPA is still too beholden to its vendor relationships after walking the exhibit hall at this fall’s FPA Experience, and that the FPA staff is doing a poor job implementing initiatives. Veres also raises the question of who is responsible for the difficulties – FPA staff, or its CEO Marv Tuttle, or the board itself – an issue that may or may not be addressed by FPA’s ongoing organizational review. Notably, though, Veres implies that the problems of FPA’s membership are about leadership and culture in the organization, not its sometimes-controversially-viewed fiduciary advocacy position… an issue recently discussed on this blog as well.

The Neuroeconomics Revolution – This article by Robert Shiller on Project Syndicate discusses the emerging "revolution" that neuroeconomics is bringing to the traditional field of economics. Highlighting that often the greatest revolutions in a body of science come from outside of it, Shiller suggests that studying the intersection of economics and neuroscience – including tying actual brain structures to how we make decisions – may lead us to completely overturn some long-held foundational beliefs in economics, including the ‘infamous’ rationality of investors. Whether neuroeconomics will continue to gain traction remains to be soon, but the possibilities for economics – and its spillover to how we make a broad range of financial planning decisions as well – are significant.

People Make Mistakes When Paying [Credit] Cards – This article by behavioral economist Dan Ariely from the Squared Away Blog from the Financial Security Project explores the typical credit card strategy typified by Dave Ramsey – to pay off the smallest credit cards first to create a positive reinforcement mechanism that helps people continue paying off the rest of their cards (even if it’s not the highest interest rate). Rather than debate whether it’s better to follow the mathematically optimal solution (pay the highest interest rate debt first) or the behaviorally preferential one (assuming many consumers really do pay down debt better by establishing a positive reinforcement mechanism by paying off smaller cards first), Ariely discusses some research he’s working on to explore how we might better align behavior with what is the mathematically optimal solution to also be behaviorally appealing and successful as well – a new line of research that could be relevant in many areas of financial planning.

Non-Spousal Beneficiary Allowed To Roll Over Distributed Funds To Inherited IRA – This article by Bob Keebler on Advisors4Advisors discusses a recent IRS Private Letter Ruling, PLR 201139011. In the ruling, a mother took a lump sum distribution of an inherited retirement account on behalf of her minor daughter, instead of completing a direct trustee-to-trustee transfer to an inherited IRA that could be stretched over the daughter’s lifetime. Although the tax code does not allow a rollover of an inherited retirement account distribution to an inherited IRA, it did allow the transaction to be unwound in this case – perhaps because it viewed the corrected rollover to an inherited IRA not as an impermissible "rollover" but as a restorative payment to make up for the mother’s error (an implied breach of her fiduciary duty). Whether this represents a new trend in allowing taxpayers to "fix" botched inherited IRA rollovers remains to be seen – the implication from Keebler’s interpretation of restorative payments is that this may not represent a dramatic new trend and interpretation by the IRS – but it’s good to know there are at least some circumstances where a fix can occur!

Why The ECB Won’t (And Shouldn’t) Just Print – This article by John Hussman of Hussman Funds, in his weekly commentary, suggests that notwithstanding all of the recent discussion about how the European Central Bank "must" print (as discussed in a Mauldin article from last week’s Weekend Reading), the ECB isn’t actually likely to do so, because it doesn’t help the underlying (in)solvency, it’s impermissible under existing European treaties that require unanimous support to change, and the inflationary consequences would not save the Euro anyway but merely destroy it by other means. As usual Hussman’s logic and reasoning is well thought out and compelling – although the potential outcome if he is right suggests that there may still be a lot of pain left to go in Europe.

How Do You Have So Much Time To Blog – This blog post by Josh Brown of The Reformed Broker explores how a busy professional (Josh himself is an investment advisor) can still find time to blog while serving clients and running a business. After a long intro, Josh gets to the heart of the matter – in reading and sharing, Josh consumes the information he needs to be effective, and in writing, he sorts out his thoughts and discovers what he is actually trying to think. The process of writing and sharing helps him to crystallize his thoughts and truly learn and assimilate the information, in a learning model that is well known in the education world. And at the same time, by sharing, Josh attracts clients with the value of the information he delivers and the expertise he demonstrates. In other words, where does Josh find the time to blog? He finds it in the time he doesn’t spend marketing and trying to grow his business by other means, and becomes a better expert to boot.

You Don’t Have To Tweet To Twitter – This article by Bill Gurley from AboveTheCrowd discusses the growing world of Twitter, but highlights a crucial aspect often missed – you don’t have to tweet to get value from Twitter. As the article discusses, Twitter is not like Facebook – you don’t have to know someone to connect to them, nor do you have to share and interact with them. Although Twitter does allow for some forms of direct engagement, it is fundamentally a one-to-many platform, that allows people to broadcast whatever they wish – and if someone broadcasts information you find compelling and appealing, you can listen as you wish. In other words, Twitter is as much about just having the opportunity to listen to people that you find interesting, as it is to talk/share/tweet back. Some have even suggested it will revolutionize how we consume news; instead of going out to find interesting content, we will simply follow people of interest, who will share and push interesting content to us. In fact, if you’ve been thinking about it and want to give it a try, you can start by following yours-truly (@MichaelKitces), or check out and follow my list of Financial Planning on Twitter to hear what your fellow planners are saying (at least, the ones who do choose to tweet).

I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column!

Catch Up On A Few Of Our Other Recent Weekend Reading Article Highlights!